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Evaluating the efficiency and equity of federal fiscal equalization

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  • Albouy, David

Abstract

Theoretically, federal transfers that make household location decisions efficient should ignore local cost differences, subsidize positive externalities, and offset differences in federal-tax payments and local taxes levied on non-residents, but not local tax revenues from residents. Transfers that redistribute resources equitably across regions will likely target areas with individuals of low earnings potential or low real incomes. Applying these criteria empirically, Canadian equalization policy appears neither efficient nor equitable, but exacerbates pre-existing inefficiencies and underfunds minorities. Locational inefficiencies cost Canada 0.41% of income annually and cause over-funded provinces to have populations of 30% beyond their efficient long-run levels.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 96 (2012)
Issue (Month): 9-10 ()
Pages: 824-839

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Handle: RePEc:eee:pubeco:v:96:y:2012:i:9:p:824-839

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Fiscal equalization; Federal taxation; Source-based and residence-based taxes; Horizontal equity; Cost-of-living; Compensating wage differentials;

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References

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Citations

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Cited by:
  1. David Albouy & Fernando Leibovici & Casey Warman, 2013. "Quality of life, firm productivity, and the value of amenities across Canadian cities," Canadian Journal of Economics, Canadian Economics Association, vol. 46(2), pages 379-411, May.
  2. Patrick Kline & Enrico Moretti, 2013. "Local Economic Development, Agglomeration Economies and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority," Working Paper Series 43_13, The Rimini Centre for Economic Analysis.
  3. Emilie CALDEIRA, 2011. "Does the system of allocation of intergovernmental transfers in Senegal eliminate politically motivated targeting?," Working Papers 201105, CERDI.
  4. Jorge Martinez-Vazquez & Andrey Timofeev, 2014. "Capital Infrastructure and Equity Objectives in Decentralized Systems," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1410, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  5. Wouter Vermeulen & Maarten Allers, 2013. "Fiscal Equalization and Capitalization: Evidence from a Policy Reform," CPB Discussion Paper 245, CPB Netherlands Bureau for Economic Policy Analysis.
  6. Jorge Martinez-Vazquez & Andrey Timofeev, 2012. "Propensity to Invest and the Additionality of Capital Transfers: A Country Panel Perspective," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1216, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  7. Boadway, Robin & Tremblay, Jean-Fran├žois, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.

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